The initiative would limit improperly the Legislature's ability to appropriate funds and would violate other prohibitions, Leman said.

A state Department of Law opinion recommended that Leman reject the proposal on several legal grounds.

The initiative would have required a majority of voters in a statewide election to approve spending any permanent fund earnings for "general government purposes."

It also would set out other prohibitions to require the Legislature to seek public approval before making changes in the $22.6 billion fund.

The initiative was sponsored by former Gov. Jay Hammond and a group led by Anchorage activist Uwe Kalenka. The group, Alaskans for Efficient Government, was informed Thursday that the petition request was rejected.

Kalenka said he was surprised by the ruling and his group would consult with its attorney to determine the next course of action.

"The issue is far away from being dead," Kalenka said.

The Alaska Constitution prohibits the Legislature from spending the principal of the fund. But earnings can be appropriated by a simple majority vote of the Legislature.

Kalenka said the Legislature has attempted to "raid" the fund in the past, citing recent legislation to base payments from the fund on a percent of its total market value.

Such a change has been endorsed by the permanent fund board of trustees, who say withdrawing 5 percent of the fund's average market value would allow it to better weather inflation.

Kalenka said the plan could erode the principal of the fund in years when the permanent fund loses value due to investment losses.

Without such an initiative, the Legislature would use the permanent fund to close chronic state budget shortfalls that are projected to reach $1 billion in three years, he said.